The budget may offer fresh stimulus for real estate
There is renewed hope that it will be a fantastic February for the real estate industry for promoters as well as home-buyers and those planning to invest in the sector. Meanwhile, the realty industry and its body NAREDCO have urged the Centre to take some “bold fiscal measures” in the Union Budget 2020.
NAREDCO has drawn the government’s attention towards needs to take steps to boost liquidity, lower stamp duty, incentivize rental housing and affordable segment, rationalize taxation and lower home loan interest rates.
NAREDCO National President Niranjan Hiranandani recently told the media that the finance ministry has been apprised of the demands of the industry to meet the challenges.
“The Indian economy has in place the blueprint to evolve into the magic number of $5 trillion but the upcoming Budget has more pressing and urgent issues which cry out for attention and remedial action. Real estate and urban infrastructure play a crucial role in boosting the economy which calls for immediate support in terms of easing the liquidity crisis, boosting rental housing and also rationalizing personal and other forms of taxation,” he said.
Industry Inc looks forward to the bold fiscal measures in key areas as follows:
1. Liquidity Issue – The industry has been demanding a restructuring of loans or a one-time roll-over in case of the stressed assets at the options of banks. In such cases the borrower will retain the asset classification of the restructured standard accounts as standard and the same will not be treated as NPA.
2. Interest Rates & Home loans – Interest rates on home loans shall be reduced to 7% pa and the benefit of a rate cut should transmit to end-users in order to revive the demand.
3. Stamp Duty – Reduction in stamp duty by 50% for all real estate transactions registered on or before 31st March 2020 shall induce the fence-sitters to turn into the actual home buyers spurring up the demand and consumption.
4. Incentivize Rental Housing – To achieve the target of Housing for All by 2022, rental housing will play a vital role. With rapid urbanization and migration, there is a huge need of developing a rental housing model to befit the need of the ever-increasing population in urban areas. In order to achieve this, we have recommended some tax incentives.
5. Redefine Affordable Housing – Recently, the definition of affordable housing has been amended in GST and Income Tax Laws and as a result, the affordable tenement has to meet the dual condition of the area and also the price cap of Rs 45 lakhs. As a result, almost all the houses in the MMR and most of the houses in NCR and other metros do not qualify as “affordable housing” resulting in the loss of benefit of reduced GST rate of 1% and also the benefit of tax exemption from such projects. We recommend that the condition related to a price cap of Rs 45 lakhs be immediately abolished and the benefits are restored to all the houses which have an area less than 60/90 sq meters.
6. Taxation Spectrum – There are provisions that create genuine hardships to real estate developers, who are already under pressure in the on-going sluggish market. The real estate industry is already struggling with large unsold inventory. Taxing notional rent (Section 23(5) of the Income Tax Act), after one year from the end of the financial year in which completion certificate is received from the competent authority, will lead to severe financial implications for the developer/industry. It may also lead to no new projects being launched, if sales remain low, which in turn will defeat the mission of the Government to provide “Housing for All” by 2022.
Growth of real estate and urban infrastructure is imperative to provide an impetus to India’s economic growth, Hiranandani said adding that fiscal stimulus to the real estate sector will have a manifold effect on 269 allied industries with multi-dimensional impact on enhancing the GDP growth inclusive of employment creation.
It will play a pivotal role in achieving an ambitious target of USD 5 trillion economy, the NAREDCO President said.
Hopefully, budget 2020 will offer fresh stimulus for real estate as the sector has had to deal with a series of disruptions.